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econ130 EXAM 1 (ch1,2,3)

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?
A. A more stable macroeconomy with fewer recessions.
B. Firms are better able to attract inputs, as these inputs do not have to share the risk.
C. Government agencies are better prepared to help when businesses fail.
D. Consistently lower prices for consumers.
B. Firms are better able to attract inputs, as these inputs do not have to share the risk.
A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?
A. It encourages more people to become entrepreneurs.
B. Firms have to pay more to attract inputs, as these inputs have to share the risk.
C. Firms focus attention on prudent risk management, as it is profitable to manage risk.
D. Income becomes more equally distributed.
C. Firms focus attention on prudent risk management, as it is profitable to manage risk.
The division of labor means that:
A. labor markets are geographically segmented.
B. unskilled workers outnumber skilled workers.
C. workers specialize in various production tasks.
D. each worker performs a large number of tasks.
C. workers specialize in various production tasks.
In what type of business do the owners bear no personal financial responsibility for the company’s debts and obligations?
A. Partnerships.
B. Corporations.
C. Sole proprietorships.
D. In all of the businesses listed in the other answers.
B. Corporations.
Refer to the data. Assuming that the firm is motivated by self-interest and that the 20 units that can be produced with each technique can be sold for $2 per unit, the firm will:
A. realize an economic profit of $10.
B. realize an economic profit of $4.
C. not earn any economic profit.
D. shut down rather than incur a loss by producing.
A. realize an economic profit of $10.
Central planning in the Soviet Union and pre-reform China emphasized the expansion of the production of consumer goods to raise the domestic standard of living.
True
False
False
Specialization in production is economically beneficial primarily because it:
A. allows everyone to have a job that he or she likes.
B. permits the production of a larger output with fixed amounts of resources.
C. facilitates trade by bartering.
D. guarantees full employment.
B. permits the production of a larger output with fixed amounts of resources.
In a market system:
A. firm owners and employees share business risk more or less equally.
B. a firm’s employees and suppliers are largely shielded from risk.
C. employees and suppliers face the greatest risks because firms can shut down without notice and leave them unpaid.
D. a firm’s owners are largely shielded from risk because they can walk away from the business at any time.
B. a firm’s employees and suppliers are largely shielded from risk.
The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:
A. creative destruction.
B. derived demand.
C. capital accumulation.
D. the difference between normal and economic profits.
A. creative destruction.
(Consider This) Which of the following statements about insurance and risk is true?
A. Insurance inhibits economic growth and investment by discouraging risk-taking.
B. Insurance transfers risk from those with a high tolerance for risk to those with a low tolerance for risk.
C. Insurance companies always earn profits because insurance premiums always exceed the payout for insured events.
D. Insurance transfers risk from those with a low tolerance for risk to those with a higher tolerance for risk.
D. Insurance transfers risk from those with a low tolerance for risk to those with a higher tolerance for risk.
Refer to the diagram. Arrows (1) and (2) represent:
A. goods and resources respectively.
B. money incomes and output respectively.
C. output and money incomes respectively.
Correct D. resources and goods respectively.
D. resources and goods respectively.
(Consider This) North Korea’s command economy:
Correct A. is one of the few remaining command economies.
B. has grown much faster than South Korea’s economy since the two countries were divided after World War II.
C. produces a per capita GDP of nearly $25,000.
D. has undergone significant market reforms and is now one of the fastest-growing economies.
A. is one of the few remaining command economies.
Which of the following is most likely to be an inferior good?
A. Fur coats.
B. Ocean cruises.
Correct C. Used clothing.
D. Steak.
C. Used clothing.
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that:
A. there are many goods that are substitutes for bicycles.
B. there are many goods that are complementary to bicycles.
C. there are few goods that are substitutes for bicycles.
Correct D. bicycles are normal goods.
D. bicycles are normal goods.
Refer to the diagram. A surplus of 160 units would be encountered if the price was:
A. $1.10, that is, $1.60 minus $.50.
Correct B. $1.60.
C. $1.00.
D. $0.50.
B. $1.60.
Which of the following statements is true about productive and allocative efficiency?
A. Realizing allocative efficiency implies that productive efficiency has been realized.
B. Productive efficiency can only occur if there is also allocative efficiency.
C. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously.
D. Productive efficiency and allocative efficiency can only occur together; neither can occur without the other.
A. Realizing allocative efficiency implies that productive efficiency has been realized.
There will be a surplus of a product when:
A. price is below the equilibrium level.
B. the supply curve is downward sloping and the demand curve is upward sloping.
C. the demand and supply curves fail to intersect.
Correct D. consumers want to buy less than producers offer for sale.
D. consumers want to buy less than producers offer for sale
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
A. An increase in supply.
B. An increase in demand.
C. A decrease in supply.
D. A decrease in demand.
A. An increase in supply.
Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve’s response to the decrease in the price of hamburgers is best explained by:
A. the substitution effect.
Correct B. the income effect.
C. the price effect.
D. a rightward shift in the demand curve for hamburgers.
B. the income effect.
Which of the following statements is true about price ceilings?
A. Price ceilings cause goods to be rationed.
Correct B. Price ceilings cause goods to be rationed by some other means than legally determined market prices.
C. Ration coupons are the only way to ration goods when price ceilings are in place.
D. All of the other statements are correct.
B. Price ceilings cause goods to be rationed by some other means than legally determined market prices.
Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained:
A. by small annual increases in supply accompanied by large annual increases in demand.
B. in terms of a stable supply curve and increasing demand.
Correct C. in terms of a stable demand curve and increasing supply.
D. as an exception to the law of supply.
C. in terms of a stable demand curve and increasing supply.
Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?
A. A only.
B. B only.
C. C only.
Correct D. D only.
D. D only.
By an “increase in demand,” economists mean that:
A. product price has fallen so consumers move down to a new point on the demand curve.
Correct B. the quantity demanded at each price in a set of prices is greater.
C. the quantity demanded at each price in a set of prices is smaller.
D. a leftward shift of the demand curve has occurred.
B. the quantity demanded at each price in a set of prices is greater.
A market is in equilibrium:
A. provided there is no surplus of the product.
B. at all prices above that shown by the intersection of the supply and demand curves.
Correct C. if the amount producers want to sell is equal to the amount consumers want to buy.
D. whenever the demand curve is downsloping and the supply curve is upsloping.
C. if the amount producers want to sell is equal to the amount consumers want to buy.
A price ceiling means that:
A. there is currently a surplus of the relevant product.
Correct B. government is imposing a legal price that is typically below the equilibrium price.
C. government wants to stop a deflationary spiral.
D. government is imposing a legal price that is typically above the equilibrium price.
B. government is imposing a legal price that is typically below the equilibrium price.
If products C and D are close substitutes, an increase in the price of C will:
A. tend to cause the price of D to fall.
B. shift the demand curve of C to the left and the demand curve of D to the right.
Correct C. shift the demand curve of D to the right.
D. shift the demand curves of both products to the right.
C. shift the demand curve of D to the right.
A government tax per unit of output reduces supply.
Correct True
False
True
Refer to the diagram. A government-set price floor is best illustrated by:
A. price A.
B. quantity E.
Correct C. price C.
D. price B.
C. price C.
Refer to the table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by:
Correct A. reduced taste for the good.
B. an increase in input prices.
C. consumers expecting that prices will be lower in the future.
D. government subsidizing production of the good.
A. reduced taste for the good.
Refer to the table. In relation to column (3), a change from column (2) to column (1) would indicate a(n):
Correct A. increase in demand.
B. decrease in demand.
C. increase in supply.
D. decrease in supply.
A. increase in demand.
If consumer incomes increase, the demand for product X:
A. will necessarily remain unchanged.
Correct B. may shift either to the right or left.
C. will necessarily shift to the right.
D. will necessarily shift to the left.
B. may shift either to the right or left.
Refer to the table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be:
A. $10 and 60 units.
B. $9 and 50 units.
Correct C. $8 and 60 units.
D. $7 and 50 units.
C. $8 and 60 units.
The income and substitution effects account for:
A. the upward-sloping supply curve.
Correct B. the downward-sloping demand curve.
C. movements along a given supply curve.
D. shifts in the demand curve.
B. the downward-sloping demand curve.
An economy cannot produce at a point outside of its production possibilities curve because human economic wants are insatiable.
True
Correct False
False
The basic difference between consumer goods and capital goods is that:
A. consumer goods are produced in the private sector and capital goods are produced in the public sector.
B. an economy that commits a relatively large proportion of its resources to capital goods must accept a lower growth rate.
C. the production of capital goods is not subject to the law of increasing opportunity costs.
Correct D. consumer goods satisfy wants directly while capital goods satisfy wants indirectly.
D. consumer goods satisfy wants directly while capital goods satisfy wants indirectly.
Refer to the diagram. As it relates to production possibilities analysis, the law of increasing opportunity cost is reflected in curve:
A. A
B. B
C. C
D. D
C. C
A person should consume more of something when its marginal:
Correct A. benefit exceeds its marginal cost.
B. cost exceeds its marginal benefit.
C. cost equals its marginal benefit.
D. benefit is still better.
A. benefit exceeds its marginal cost.
The movement from line A to line A’ represents a change in:
A. the slope only.
B. the intercept only.
C. both the slope and the intercept.
D. neither the slope nor the intercept.
B. the intercept only.
Refer to the diagram. Curve B is a:
Correct A. production possibilities curve indicating constant opportunity costs.
B. production possibilities curve indicating increasing opportunity costs.
C. demand curve indicating that the quantity of consumer goods demanded increases as the price of capital falls.
D. technology frontier curve.
A. production possibilities curve indicating constant opportunity costs.
Refer to the diagram. Starting at point E, the production of successive units of bread will cost:
A. a constant 8 units of tractors.
B. a constant 6 units of tractors.
Correct C. 1/8, 1/6, 1/4, and 1/2 units of tractors.
D. 1/2, 1/4, 1/6, and 1/8 units of tractors.
C. 1/8, 1/6, 1/4, and 1/2 units of tractors.
The law of increasing opportunity costs states that:
Correct A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.
B. the sum of the costs of producing a particular good cannot rise above the current market price of that good.
C. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount.
D. if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate.
A. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.
Refer to the diagram for athletic shoes. If the current output of shoes is Q1, then:
Correct A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.
B. society would consider additional units of shoes to be less valuable than alternative uses of those resources.
C. society would experience a net loss by producing more shoes.
D. resources are being allocated efficiently to the production of shoes.
A. society would consider additional units of shoes to be more valuable than alternative uses of those resources.
Microeconomics is concerned with:
A. the aggregate or total levels of income, employment, and output.
Correct B. a detailed examination of specific economic units that make up the economic system.
C. positive economics, but not normative economics.
D. the establishing of an overall view of the operation of the economic system.
B. a detailed examination of specific economic units that make up the economic system.
An economic model is an ideal or utopian type of economy that society should strive to obtain through economic policy.
True
Correct False
False
In constructing models, economists:
Correct A. make simplifying assumptions.
B. include all available information.
C. must use mathematical equations.
D. attempt to duplicate the real world.
A. make simplifying assumptions.
Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to:
A. conclude definitively that people buy more ice cream when the temperature rises.
B. state her findings as a well-tested economic principle.
Correct C. use the observed data to form a hypothesis about ice cream buying behavior.
D. throw out the data if it does not show a perfect relationship between buying habits and the other information she has collected.
C. use the observed data to form a hypothesis about ice cream buying behavior.
(Consider This) Refer to the diagram. The U.S. response to the events of September 11, 2001, is illustrated by the:
A. shift of the production possibilities curve from CD to AB.
B. shift of the production possibilities curve from AB to CD.
Correct C. move from x to y on production possibilities curve AB.
D. move from y to x on production possibilities curve AB.
C. move from x to y on production possibilities curve AB.
If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that:
A. it is impossible to produce more consumer goods.
B. resources cannot be reallocated between the two goods.
C. it is impossible to produce more capital goods.
Correct D. more consumer goods can only be produced at the cost of fewer capital goods.
D. more consumer goods can only be produced at the cost of fewer capital goods.
Which one of the following expressions best states the idea of opportunity cost?
A. “A penny saved is a penny earned.”
B. “He who hesitates is lost.”
Correct C. “There is no such thing as a free lunch.”
D. “All that glitters is not gold.”
C. “There is no such thing as a free lunch.”
Refer to the diagram for athletic shoes. The optimal output of shoes is:
A. Q1.
Correct B. Q2.
C. Q3.
D. greater than Q3.
B. Q2.

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